AS 13 Accounting for Investments

AS 13 Accounting for Investments is widely used and deals with accounting for investments in financial statements prepared by a Company and prescribes various disclosure requirements.

Applicability of AS 13 Accounting for Investments

AS 13 Accounting for Investments doesn’t deal with the following:

• The base for recognizing dividends, interest, and rentals which are earned on the investments that are covered by AS 9
• Finance or operating leases which are covered by AS 19
• Investments in retirement benefit plans and life insurance enterprises which is covered by AS 15 
• The following which is formed under the Central or the State Government Act or declared under Companies Act, 2013

1. Mutual Funds
2. Venture Capital Funds and related Asset Management Companies
3. Banks as well as public financial institutions

Classification of Investments

A. Current Investments – Current Investments are investments which by their nature are readily realizable and are intended to be held for less than a year from the date when such investment is done.

B. Long-Term Investments – Long-term investments are investments other than the current investments, even though they might be freely marketable.

Cost of Investments

• Broker, duties, and fees – The cost of investments include charges related to acquisition of brokerage, duties, and fees
• Non-cash consideration – In case investments are acquired, or partly acquired, by

1. issuing shares 
2. issuing other securities 
3. any other asset,

the cost of acquisition is the fair value of securities which are issued or the assets which are given up. The fair value might not essentially be same as the par or nominal value of securities which are issued. It might be prudent to consider fair value of such investment acquired in case it’s more evident

• Interest, dividend or other receivables – Dividends, interest and other receivables that are in connection with the investments are usually considered as income, is the ROI (return on the investment).

However, in certain conditions, such inflows signify a recovery of the cost and doesn’t form part of the income. In case it’s difficult to do such allocations, cost of investment is usually reduced to the extent of dividends receivable only in case they represent clearly the recovery of a portion of the cost

• Right Shares – In case right shares offered are subsequently subscribed for, cost of such right shares is then added to carrying the amount of original holding.

In case the rights aren’t subscribed for, however, are sold, sale proceeds from the sale of such rights are transferred to P/L statement. But, where an investment is acquired on a cum-right basis and market value of the investment immediately after becoming ex-right is less than the cost for which such investment was acquired, it might be prudent to apply the proceeds from the sale of rights to reduce carrying the amount of the investment to the market value

Carrying Amount of Investments

Current investments must be carried in financial statements at lower of cost and fair value which is determined either by category of investment or on an individual investment basis, however, not on the overall basis.

Long-term investments must always be carried in financial statements at their cost. But, when there’s a decline, apart from temporary, in value the long-term investment, carrying amount is reduced for recognizing such decline.

Investment Property

Investment property is investments that are made in land or buildings which aren’t envisioned to be used significantly for use, or in business operations of, the investing company. 

Investment Treatment on Disposal

On sale or disposal of the investment, the difference between the carrying cost and proceeds from the sales net of any expenses is transferred to P&L.

Reclassification of Investments

Where a long-term investment is reclassified as a current investment, the transfer is made at carrying amount and lower of cost at the date of such transfer. Where an investment is reclassified from current investment to long-term investment, the transfer is made at the lower of its cost and the fair value of such investment at the date of such transfer.

Disclosures in the Financial Statements

The below mentioned are the disclosures in the financial statements with respect to AS 13 Accounting for Investments is applicable:

(a) accounting policies employed for determining carrying amount of investment

(b) the amounts which are included in the profit and loss statement for:

(i)    Dividends, interest, and rentals on the investments presenting the income from such long-term and current investments separately. Gross income must be stated, amount of TDS (tax deducted at source) included under the Advance Taxes Paid

(ii)    profits and losses on the disposal of current investment and the changes in carrying the amount of the investment

(iii)    profits and losses on the disposal of long-term investment and the changes in carrying the amount of the investment

(c) substantial limitations on the right of ownership, realizability of the investments or remittance of income and proceeds of disposal

(d) the total amount of both the quoted and unquoted investments, providing the total market value of the quoted investments

(e) other disclosures as explicitly as required by the relevant statute governing the company

Major differences between AS 13 and Ind AS 40

Particulars	AS 13	Ind AS 40
Guidance on Investment property	AS 13 provides limited guidance over investment property	Ind AS 40 provides a complete and separate guidance in this regard
Inclusion of leased property	AS 13 is silent with respect to property held by the lessee under a finance lease	Ind AS 40 covers property that is held by the lessee under a finance lease
Definition of Investment property	AS 13 defines an investment property	Ind AS 40 explicitly distinguishes between owner occupied-property and investment property
Recognition criteria	AS 13 is silent with respect to any such treatments	Ind AS 40 covers the recognition criteria under various scenario